Euro Disney found itself in a very difficult position at the end of 1994 up until that year it had been struggling to survive in the market, but now that situation is passed. The next frontier was to make Euro Disney a profitable business just like the other theme parks of the Disney Company in the United States and Japan. Yet, it resulted to be a more challenging project to build a theme park in Europe than it was thought before.
There Disney faced some new forms of challenge and it is now on the verge of transforming its company culture in the Euro Disney Park. The reason is the pressure from these external forces. In order to assess what is the effect that these external forces have on the company and how is the company culture going to change as a result, we should start by assessing the situation that Euro Disney faced in 1994. In order to do this, we have to conduct a PESTEL analysis and Porter’s Five Forces analysis.
PESTEL analysis for Euro Disney
The PESTEL analysis is used to analyze the macro-environmental factors that influence decision-making and the ongoing of a business firm. In PESTEL analysis the political, economical, social and technological factors of the macro-environment are analyzed. This is done in order to assess their influence on the company which wants or conducts business in that environment.
The political factors are concerned with the role of government in the economy. They take into consideration to what extent does the government intervenes in the economic life of a society, especially concerning areas like the tax policies, the tariffs and restrictions in trade, labor law, security issues and general political stability of that country (Gillespie, 2007). In the case of Euro Disney, the company has decided to construct its European theme park in France, near Paris.
One of the considerations sit should make is that in Europe tax policy and worker protections and benefits are not like those in the US. In fact, they are quite the opposite. Companies are required to pay higher taxes and provide higher levels of labor force protection. Labor unions are also well organized in France, and all across Europe, and do have a voice in governmental policies. Disney has to consider this situation differently than that in the US or Japan.
Nevertheless, the company received strong support and backing from the French government which was eager to add one more tourist attraction to Paris (Grant, 1994). When the agreement was signed the central and local government in France committed to developing a 30 year-long infrastructure project which would benefit the area where the park was to be constructed. They also provided the land with cheap prices as an incentive for future investment from the Disney Company (Grant, 1994).
The economical factors are related to the health of the market in that country. They include fiscal policy, exchange rates, interest rates, credit situation in the market, inflation rates and economic growth rate. They directly have an impact on the financials of business firms. For example, interest rates and exchange rates influence the cost of capital for the firm, therefore the growth and expansion potential for that firm (Gillespie, 2007).
A major economical factor is that the area around Paris was home to millions of people with mid to high-income levels. The city itself is one of the major cultural and tourist attractions. Millions of people visit Paris annually. This increases the demand potential for Euro Disney. It can position itself as an attraction site for the tourist coming to spend their vacation in Paris, or Europe in general.
Social factors are also very important for the future of the business. Changing social conditions can result in disaster for a company or bring high levels of revenues. These social factors include culture and tradition as well as demographics. They do significantly impact demand for certain products. Thus, the impact on the product sales of a company and its revenues. They also have an impact on other miscellaneous costs that influence the total cost of operations of that company.
Euro Disney was to be constructed in an area home to more than 10 million people. Most of the families residing around the area had mid to high incomes. They also had a tradition of spending time on family entertainment sites during leisure time. Another important social factor was the highly qualified local labor available. Disney Company could benefit from the availability of professionals. A final social factor was the large number of tourists that visited Europe and Paris in particular.
Technological factors include innovative trends relating to new product development or new process improvement. They mainly deal with technology incentives, automation of processes and new techniques of work management, and all related research and development activities. The Disney Company is very well positioned in terms of technological development. Due to the hard work and talent of the Disney family, it has been generating innovative products for decades. Also, the Disney family owns partially or fully, many subsidiaries which are leading institutions in financial management, engineering or architecture. The concept of the Disney parks itself was something innovative and included services and technology unknown before to theme parks (Grant, 1994).
Due to the changing conditions of the world, two more factors were added to the analysis. They were the environmental factor and the legal factor.
Legal factors are similar to the political ones with the difference that they include only processes sanctioned by law. For example, tax laws, environmental protection law, consumer protection law, employment law or health and benefits law, are all included in the legal factors. A company should be attentive to these laws in order not to damage its operations. As mentioned above, Euro Disney has to adapt its management of operations according to the consumer protection and employment laws of Europe, particularly of France1. It is a new experience since in Japan and the US they had to deal with different legal regulations. In Europe, they find high levels of worker protectionism and customer safety regulations. These regulations do have an impact on the cost of operations of Euro Disney (Grant, 1994).
Due to the latest development in environmental policy and situations, many business firms are responding with practical measures. The environment has become a major factor impacting the operations of a company. This factor “includes weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of climate change is affecting how companies operate and the products they offer–it is both creating new markets and diminishing or destroying existing ones” (Johnson et al, 2007, pg. 46).
Euro Disney is also a tourist and leisure attraction site. Its operations are directly linked with weather conditions and climate change. Most of the area of the park is under the open sky and bad weather affects the number of visitors. It is less possible that families and tourists choose to spend the day at Euro Disney under bad weather conditions.
Porter’s Five Forces analysis for Euro Disney
Porter’s five forces analysis is used to measure performance and try to predict how is going to be the business future of a company. It is a form of business strategy analysis which managers use to determine their entry strategy on the market or other strategies required to ensure the well-being of their company (Porter, 1990). As shown from the diagram below, it is composed of five elements: the bargaining power of suppliers, the bargaining power of customers, the threat of new entrants, the threat of substitute products and competitive rivalry within the industry.
Bargaining power of suppliers
In fact, Euro Disney is in a comfortable position regarding its suppliers. The construction firm of the park was WED Enterprise, a design and engineering company that is a fully owned subsidiary of the Disney family. Also, from the agreement reached with the central and local government of France, the new company to be formed, Euro Disneyland, was to function as a French corporation. This would make the new company benefit in terms of taxes and the government was to provide the land and the necessary infrastructure development, especially transportation, around the area. Also, in 1994, the Euro Disney Company managed to strike a deal with creditor banks for a FF 13bn restructuring agreement.
Bargaining power of consumers
In fact, demand for Disney products in Europe has been quite strong and it was one of the major factors influencing the decision of top management to open a Disney theme park in Europe. This demand was mainly for toys, books and comics that had Disney characters as their main figures. They also had the strong fact that European consumers generated almost one-quarter of revenues for Disney’s licensed consumer products (Grant, 1994, pg. 281).
There were also some other crucial demand factors that were taken into consideration when they decided to build Euro Disney near Paris. One of them is the high density of population with mid to high levels of income. Also, Paris already was a well-known tourist location attracting millions of tourists yearly. Euro Disney could benefit from this tourist population as well. This situation gives the consumer a high level of bargaining power.
The threat of new entrants
Until that moment there was no major theme park in Europe. Nevertheless, just months after the company announced plans for Euro Disney, three local French companies opened their versions of a theme park in an attempt to preempt Disney’s entry into the market (Grant, 1994, pg. 289). These new competitors still do not pose any major threat to the company. The conditions of the agreement with the government, the existing brand recognition of Disney parks worldwide and the tradition in quality of services made this threat of new entrants really not a concern for Euro Disney.
The threat of substitute products
The situation is quite different for substitute products. In Japan and the US Disney parks did not have the cultural tourism industry as a major competitor. But Europe was different. Every major city in the continent had its historical background with different tourist attraction sites. There were many family entertainment and vacation sites within Europe that fought to attract the attention of families and tourists. There were many hosts of traditional forms of family entertainment established in Europe. Many fairs, festivals and carnivals were organized throughout Europe. Some of them were local but others were major events and attracted many families and tourists.
In conclusion, the Euro Disney project for Walt Disney Company has come to be a very challenging one. The cultural factors can have a heavy impact on the way the company manages its operations and responds to market shocks. Due to the present difficult situation, Euro Disney has to undertake radical steps in order to become a profitable business.
Gillespie, A. 2007. Foundations of economics. Oxford: Oxford University Press.
Grant, R. 1994. “Euro-Disney: From dream to a nightmare (1987-1994)”. Harvard Business Review, vol. 4, no. 34, pg. 281-296.
Johnson, G. Scholes, K. Whittington, R. 2007. Exploring Corporate Strategy (8th edition). New York: McGraw-Hill.
Porter, M. 1990. The competitive advantage of nations. London: MacMillan.
Many authors, like Gillespie (2007), argue that France along with Germany is one of the nations that put customer protection and worker protection first, instead of tending to promote business profitability as a generator of market growth and stability. The forms of social welfare are very developed in Europe in comparison to the United States.